ASIC has made new market integrity rules for capital, providing important protections for investors and the integrity of the market, whilst simplifying the capital framework for market participants.
The ASIC Market Integrity Rules (Capital) 2021 (Capital Rules) will replace the existing separate rule books for securities market participants and futures market participants to create a common set of rules for capital.
Consistent with our proposals in CP 302 Proposed changes to ASIC’s capital requirements for market participants, the Capital Rules will:
- move futures market participants from the existing net tangible asset regime to a risk-based regime, subject to a minimum core capital requirement of $1,000,000;
- increase the minimum core capital requirement for securities market participants to $500,000;
- include a requirement to calculate an underwriting and sub-underwriting risk amount; and
- simplify the capital requirements by removing redundant rules and forms.
As a result of feedback received from industry, ASIC has:
- introduced an extension of the proposed transition period from six to 12 months;
- modified the proposed liquidity requirements by replacing the proposed 12-month cash flow requirement with a three-month cash flow requirement, together with a requirement to maintain a 12-month liquidity plan;
- included the ability to offset a right-of-use asset against a corresponding lease liability, with the net amount (if positive) to be treated as an excluded asset;
- adjusted various components of the commodity position risk requirements and FX position risk as they apply to principal positions.
Commissioner Cathie Armour said, ‘ASIC’s new Capital Rules simplify and strengthen the current capital regime, better aligning our standards with comparable international capital frameworks and the financial requirements of the Australian financial services licensing regime. The Capital Rules further consider the risks associated with operating a market participant business, helping to better protect investors and counterparties.’
ASIC consulted extensively with industry on changes to the market integrity rules. Published today, Report 692 Response to submissions on CP 302 Proposed changes to ASIC’s capital requirements for market participants (REP 692) sets out feedback from our consultation.
Following a 12-month transition period, market participants will be required to comply with the Capital Rules from 17 June 2022. Market participants may wish to opt into the Capital Rules before 17 June 2022, by providing written notice to ASIC. Upon opting in, market participants will be required to lodge monthly risk-based returns through ASIC’s regulatory portal.
Exemptions to requirements contained within the Capital Rules apply to clearing participants of an approved clearing facility, authorised deposit taking institutions and principal traders only.
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Background
ASIC supervises the capital and reporting requirements for non-clearing market participants and is empowered to make and enforce market integrity rules.
ASIC assumed responsibility for supervision of market participant capital from the Australian Securities Exchange (ASX) on 1 August 2011. No substantive changes had been made to the capital requirements for non-clearing participants since 2000.
ASIC’s review highlighted that the capital requirements were not able to adequately address the risks of operating a market participant business today.